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Hello everyone, my name is Elizabeth Smith and I am getting back in to real estate investing after a long absence. My first (and so far only) deal went from a rental to an owner finance and I love it!
Now I have an opportunity to figure out how to work a deal around a home that the owner has recently walked away from (stopped paying in October) because of a divorce. The owner I am working with is the only one on the mortgage thank goodness. He owes about $155,000 with late fees and non-payments and its a 5 bed, 2 bath, 1970 built and aprox 1970 sq ft home. No garage, pool, etc just a boring brick ranch style home with 5 beds on a larger lot for the neighborhood (9,147 sq ft). The comps I found (maybe not the most reliable comps) are that it is worth between $157k and $170K. It needs a little bit of cosmetic work like new floors in some of the rooms, paint, weeds pulled, etc. but doesn’t appear to need anything major. The owner gave me official permission from his bank to access his mortgage info and he received a loan modification last summer for hardship he was already experiencing. I know an investor who buys short sales but I’m thinking this is not the best payday for me (and I’m not a realtor btw). I dont yet have any official contracts with the owner but he did allow me to put up a For Sale sign in the vacant window today with my phone number on it to see what it might attract and he is definitely not moving back into the home. He has a ton of debt and cant afford this home anymore and was willing to walk away and ruin his credit until I stepped in.
Now that I’m getting back into the swing of things with RE investing, I’m thinking perhaps I should ask him for a quick claim deed and pay him $100 or so and then try to do a fast HBS? Im not familiar with the contract side of things yet….Thank you everyone for any suggestions you may have for me. ~ElizabethHI Elizabeth.
Congratulations! This is a super skinny deal obviously, but there is some opportunity.
You don’t want the quit claim deed or to take title to this property.
You should offer it for sale with seller financing. If you did a HIghest Bidder Sale for the highest down payment, you should be able to get $20,000 to $30,000 down even with repairs needed. But before you do that, you need to get more information like:
How much are the mortgage payments per month?
What interest rate is the mortgage? Is it fixed or an ARM or a balloon?
Does the payment include taxes and insurance?
Do you know what the exact amount is that is due to bring the loan current?Post this info then I can give you more details about how to proceed.
Jackie
Here are the details you asked about Jackie:
$1,142/month mortgage payment
FHA fixed interest is 4.375%
Yes the payment includes taxes and insurance
The amount to bring the loan up to date is $163,858.I also found out that they enclosed the carport to add the extra bedrooms but apparently without a permit because there is nothing on file and the county assessors has it listed as a 3 bed not a 5 bedroom.
This deal is looking thinner and thinner to me. FYI, I dont know if I mentioned but the owner has moved out of the home already so the bank cant even do a short sale for him. I am willing to try doing a HBS just to see what happens and also to learn from the process. Nothing ventured, nothing gained right?
Are my options for this particular house to try and get an option to buy if I can sell it (highest bidder it) for over $163,858 or Master Lease it as a Frat house and charge each college kid $1000 a month? I wouldnt fix it up at all if I rent it out.oops, this one is dead in the water if $163,000 is needed to bring the loan current PLUS the mortgage balance?
Or is there a different amount needed to bring the loan current? If he stopped making payments in October of 2017, at about $1500 each that is only $6,000 to bring the loan current. If that is the case, there is still an opportunity. to do a HIghest Bidder Sale.
Hi Jackie,
Thank you so much for the great coaching call tonite on HBSales! I am excited about your suggestion to do a HBS for the down payment and seller financing.
Just so I understand the steps I need to take, here is what I wrote down:
1) Get an options contract signed by seller (Im confused by all the many contracts listed on the CFD website so I’m not sure which one I should be using…)
1) a. Find out from the bank exactly what amount is needed to bring the loan current again.
2) Immediately put a huge sign in front of the house letting people know its going to be auctioned off in a one weekend only open house event to purchase with owner financing. Starting down payment bid is $2,000.
3) Get a home inspection (aprox $350 for this price home)
4) Buy huge sheets of coroplast and make 50 more signs
5) Make flyers to pass out to all the homes in the neighborhoods, Walmart parking lots on the cars, etc
6) Line up a mortgage lender and a hard money lender to also attend the open house (on second thought, I dont think I need these guys, right?)
6)a. What if the buyer hesitates to do seller financing? Who pays the original lender: me? the new buyer? the original owner? Can I ask for a larger monthly payment and collect the difference? What if the original buyer tries to buy another home in a couple of years and has his first FHA loan on this home still tied up?
7) Schedule the open house (11-3 on Sat/Sun)
8) Write down all the contact info of any callers
9) Get the cookie dough, cinammon scented candles and make sure the home is clean
10) Have buyer’s contract ready to go. I’m assuming it will be different than my Options Contract with the current seller? Is this where I would use a Land Trust Contract?
11) Go through a title company and close?
12) Collect my check from the title company?HI Elizabeth. I’m glad you enjoyed the Highest Bidder Sale TWO HOUR Coaching Call last night. I hope you learned a lot!
Here are the answers to your questions:
1) Get an options contract signed by seller (Im confused by all the many contracts listed on the CFD website so I’m not sure which one I should be using…).
IF YOU HAVE THE HIGHEST BIDDER SALE BOOK, USE THE CONTRACT IN THERE. IT SAYS OPTION CONTRACT AND MARKETING AGREEMENT AT THE TOP. YOU’LL ALSO NEED A LETTER OF AUTHORIZATION SO YOU CAN CONTACT THE BANKS AUTOMATED LINE TO GET THE AMOUNT TO BRING THE LOAN CURRENT, PAYOFF, ETC.
1) a. Find out from the bank exactly what amount is needed to bring the loan current again.
YOU CAN DO THAT WITHOUT TALKING TO ANYONE. MOST BANKS HAVE AN AUTOMATED LINE BUT YOU’LL NEED A LETTER OF AUTHORIZATION FROM THE SELLER TO CONTACT THEM. YOU’LL ALSO NEED THE ACCOUNT NUMBER AND THE SELLERS SOCIAL SECURITY NUMBER (MAYBE JUST LAST
2) Immediately put a huge sign in front of the house letting people know its going to be auctioned off in a one weekend only open house event to purchase with owner financing. Starting down payment bid is $2,000.iT’S NOT AN AUCTION. DO NOT CALL IT AN AUCTION. SAY THE HOUSE WILL BE SOLD WITH SELLER FINANCING TO THE PERSON WITH THE MOST DOWN PAYMENT. NO BANK FINANCING NEEDED.
3) Get a home inspection (aprox $350 for this price home)
CORRECT
4) Buy huge sheets of coroplast and make 50 more signs
NOPE – BUY 50 18″ X 24″ COROPLAST SHEETS. YOU’LL ALSO EITHER NEED METAL STAKES OR YOU CAN USE WOODEN STAKES TO GET THE SIGNS IN THE GROUND. THE SIGN SHOP SHOULD HAVE BOTH. YOU CAN ALSO BUY WOODED STAKES AT HOME DEPOT.
tHEN GET A BIG FAT MAGIC MARKET AT AN OFFICE SUPPLY STORE OR WALMART TO WRITE ON THE SIGNS.
5) Make flyers to pass out to all the homes in the neighborhoods, Walmart parking lots on the cars, etc
CHECK
6) Line up a mortgage lender and a hard money lender to also attend the open house (on second thought, I dont think I need these guys, right?)
NO, YOU WILL NOT NEED THIS SINCE YOU ARE SELLING WITH SELLER FINANCING.
6)a. What if the buyer hesitates to do seller financing? Who pays the original lender: me? the new buyer? the original owner? Can I ask for a larger monthly payment and collect the difference? What if the original buyer tries to buy another home in a couple of years and has his first FHA loan on this home still tied up?
IF THIS IS AN FHA MORTGAGE, THE SELLER WILL NOT BE ABLE TO GET ANOTHER FHA MORTGAGE BUT HE/SHE CAN GET A CONVENTIONAL MORTGAGE.
THE PEOPLE WHO BUY THE HOUSE AT YOUR HIGHEST BIDDER SALE ARE WELCOME TO REFINANCE AFTER YOU CLOSE. YOU NEED TO CLOSE THIS ONE OUT FIRST, GET THEIR DOWN PAYMENT SO YOU CAN PAY OFF THE DEFAULT AND MAKE YOUR PROFIT. BUT IF THEY WANT TO REFINANCE A MONTH OR TWO LATER, THEN THE TITLE COMPANY DOING THEIR CLOSING WILL PAY OFF THE UNDERLYING LOAN AT THEIR REFINANCE CLOSING.
7) Schedule the open house (11-3 on Sat/Sun)
CHECK
8) Write down all the contact info of any callers
CHECK, AND ALSO GATHER INFO ON EVERYONE WHO COMES TO THE OPEN HOUSE9) Get the cookie dough, cinammon scented candles and make sure the home is clean.
CHECK. YOU CAN ALSO BUY ALREADY MADE CHOCOLATE CHIP COOKIES THEN JUST KEEP THEM ON WARM IN THE OVER – IT WILL MAKE THE HOUSE SMELL GREAT. THIS IS LESS HASSLE THAN BUYING COOKIE DOUGH.
10) Have buyer’s contract ready to go. I’m assuming it will be different than my Options Contract with the current seller? Is this where I would use a Land Trust Contract?
YOU WILL NEED A CONTRACT TO SELL THE HOUSE. AND YOU NEED TO TURN THE CONTRACT IN TO THE TITLE COMPANY OR ESCROW OFFICE SO IT CAN CLOSE THERE. YOU SHOULD NOT DO YOUR OWN CLOSING. THE TITLE COMPANY WILL CREATE THE NOTE, DEED OF TRUST (OR MORTGAGE), WARRANTY DEED AND RECORD ALL DOCUMENTS AFTER THEY ARE EXECUTED.
11) Go through a title company and close?
YES, SEE ABOVE12) Collect my check from the title company?
NO, YOU DO NOT WANT TO GET A CHECK – IT WILL TAKE 10+ DAYS TO CLEAR AT YOUR BANK. IT IS BETTER IF YOU HAVE THE TITLE COMPANY WIRE THE MONEY IN TO YOUR ACCOUNT. GIVE THEM ONE OF YOUR DEPOSIT SLIPS, THEY WILL TAKE CARE OF THE REST.
Update so far:
I asked around and found an Escrow Agent who I’ve been told knows how to close creative financing transactions and I’m meeting with him next week to basically interview him for my future close on the above property. Does anyone have any suggestions for what types of questions to ask him so there are no surprises on closing day?
FYI, the owner has agreed to move all of his belongings out in the next 2 days (the family actually already moved out 3 or 4 months ago) and we are meeting on Sunday night to sign his Options Agreement. I just read through Jackie’s HBS book and I will use the Options Contract there and would like to do a Seller Finance on my part and then when I do the HBS open house, I will sell it to the highest (down payment) bidder buyer using seller finance again. So in other words, I will have an agreement with the original owner to finance my purchase at no money down for exactly what he owes. (He has already agreed to this verbally because he understands that he will save his credit and he was just going to walk away before I approached him anyway. I’ve also offered to pay the inspection fee and all marketing and clean up of the place). The second agreement will be myself seller financing to the retail buyer with the highest down payment. My strike price will be a small figure above the amount to bring the loan current. I have the authorization form signed and sent to the owner’s bank and am just waiting for them to make it official so I can get that exact number.
So I’m wondering, does this all make sense? Will it work, and what do I need to go over with the escrow agent?I hadnt heard back from anyone on the forum about my question about what to ask an escrow agent and I dont want to be a nuisance (plus I feel so naive about this now) but after my appointment with the title person this mornig, I think I have more questions than I started with….
I asked lots of general “what if I find this or that property/situation” and he said:
Federal laws prohibit title companies from doing any kind of FHA wraps (which are seller financing with an FHA loan I learned).
He talked about “Agreement for Sale” and he says its a contract for purchase that gives me equitable interest instead of the title. Im still unclear why or when to use this….
He said contract assignment fees are not technically illegal and they will do them but they will give me a 1099 to fill out. Still not sure when to use this over an Option or Agreement for Sale…..
He suggested under the scenario I brought up (which happens to be real: seller has no equity, I want to do a seller carryback and then find a retail buyer with enough down payment and do a seller finance with retail buyer) and he says this is really just a “Lease Option.” He says this should have a balloon payment, or at least that is the way he sees them done.
I feel really confused and not sure which way to go with the property I am pursuing for the HBS for the highest down payment. I am supposed to meet with the homeowner on Sunday to sign the paperwork but I dont know what to have him sign. The homeowner is happy with the scenario I am offering of seller financing with an open house to find a buyer with enough down payment to catch up the loan……..But I’m not sure I can close this deal with a title company so I’m confused how to proceed…….can anyone help??Elizabeth
Because this is such a skinny deal, it would be better if you get an option contract (contract to purchase with marketing agreement to do a HBS). Advertise the property as being sold to the highest bidder with the most down.
What ever the highest down is, part of that money will be used to bring the loan current. The rest is YOUR profit.
You could sell with an agreement for deed to your buyers (contract for deed) but you will get less down payment.I have sold hundreds of FHA loan properties with a wrap. Unless the laws have changed in the last year, I do not believe the title company guy is accurate. You do have to disclose to the seller that there is a due on sale clause. And you do have to disclose to the buyers that there is an underlying loan.
You could just get the seller to sign an agreement that you will release your option contract for $X ( the amount you get paid) then let the seller go to contact with the buyers instead of you.
or
You could buy the house with a wrap then sell with a wrap. But with a skinny deal this may not be a wise thing to do. If the market tanks, your buyers will walk away the you’ll be left holding the mortgage responsibility on a house that is upside down. If there were a lot of equity it would be a different scenerio.
Just get the option contract.
There are a lot of ways to do this deal but you always need to think about how you can reduce risks too.
Update: I officially have this property under contract as of today (Option to Purchase with a Marketing Agreement). I am planning on doing the open house in 2 weekends (Jan 27 and 28). With tomorrow being a holiday, I think the utility companies will need time to turn on the gas, electric and water which I’m assuming I will need for the home inspection to get done. I have an inspector available and he’s just waiting on the day. I have a landscaper coming to clean up the weeds and a house cleaner to help clean up the house. Nothing else will be done really, its As-Is.
There is a lot of so so furniture left in the house that they dont want so I was thinking of either doing an estate sale the weekend before to help create buzz or trying to do both the Highest Bidder Sale AND an estate sale the same day, with lots of extra help. What do you think?
Also, I would like to advertise this house on http://www.HighestBidderSale.com but when I typed that website addy in, it reroutes back to CashFlowDepot…is this a members only website? I need to make my sign order and want to make sure its a working, public website if I print it on the signs.
I have an inexpensive print company in town that will print out any text in as large a size paper as I want and they will also laminate it so for instance, the HBS instructions I will provide for people to read can be printed on 2’X3′ laminated paper for about $5, and its reusable. I was thinking of using an easel with a large piece of paper for the bid sheet so its vertical and easy for all to see from across the room. What do you think Jackie?
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Elizabeth, let me address the furniture disposal issue only.The best estate sale companies are likely to be the busiest, with the largest backlogs. You might, or might not, be able to get one to schedule a sale that quickly. You won’t know until you do some phoning. It’s probably a bad idea to try to hold an HBS open house and an estate sale on the same day, for multiple reasons. An HBS open house works best to squeeze in as many people as possible into 3-4 hours only on both Saturday and Sunday — AND in as cleaned a house as possible. The estate sale concept works just the opposite, with as much “stuff” available for shoppers and with sale open hours all day long on Friday, Saturday and Sunday. Those two concepts would fight each other tooth and nail. Much better to have the so-so condition furniture gone well BEFORE the HBS weekend, and since there may not be the time for estate sale scheduling. There are alternatives.
Some of those alternatives might include:
Asking if one of the estate sale companies would pick up and bundle your stuff with different estates’ items into a warehouse to await the sale operator’s schedule to sell them at another location much later.
Phoning local FedEx offices to learn which ones are plugged into the eBay’s consignment system, now called “Valet” I think. The nearest one might be willing to pick up some of those furniture items to evaluate, describe, photograph, package for shipping, and handle the eBay selling process. You mainly care how quickly they might do such a pickup, for which (or maybe all, or maybe none) items, and not how long the rest of their process takes.
Another route might be to photograph, describe, and create craigslist entries. That would only work for items that sell quickly in order to get them out of the house in time. However, you can quickly yank a craigslist ad if time is running too short to take other disposal measures.
Another route might be to survey the local charities to learn which ones accept furniture donations and whether they have the trucks to do local pickup. That could prove a very quick way to handle items that don’t move quickly enough otherwise. You would want to learn how quickly they can and will respond if needed. For ones without such truck pickup capabilities, it might be worthwhile to rent a truck to do that delivery.
A final thought. Lots of furniture, when all else fails, gets set out on the curb (if the weather forecast is promising) and disappears very quickly.
So all of those suggestions do not present a conflict with the 3-4 hour two-day HBS open house concept. And based on what you learn locally, “your mileage may vary.”
Best wishes,
–Dee
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Elizabeth, in this case, with slim margins, you need to keep your expenses in check. Dee’s ideas are great for disposing off of the existing firniture, with the backup being a donation to the church- as long as the house is cleared up before the HBS open house dates.
Spend money on marketing with healthy spreads, in upscale neighbourhoods, etc. In such scenarios, staging would also help; for your current one, not at all.
On another point, if the seevices are all disconnected, getting them started may require city inspection, and licensed tradesmen involved to conduct the gas pressure test, water pressure test, etc to get the city, and/or the utility companies to start the services. You do need electricity for the HBS, so make sure the meter is still in the meter base, and it is just a matter of starting a temporary service by calling the electric servicing company.
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Elizabeth, two more thoughts:1. I should have included auction houses in my discussion of estate sale companies. Often they can be less picky on item quality. Otherwise, they operate almost identically to estate sale companies as I described. Look for the ones whose business model includes household goods.
2. Regarding staging as you described. I can’t imagine why that wouldn’t be a useful addition, if done by a person who understands what works and what doesn’t.
–Dee
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Dee gave you some GREAT advice. I would only make one suggestion. When he said, “A final thought. Lots of furniture, when all else fails, gets set out on the curb (if the weather forecast is promising) and disappears very quickly,” I would suggest setting it out by the curb, but instead of putting a sign that says FREE, put a price on it and someone will STEAL it! LOL!
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Ayesha, I had no disrespect intended towards you or your remarks about staging usefulness. I had not seen your post when I last wrote. I keep getting reminded the hard way to always do a webpage refresh on not only the master list of forum categories, but also a refresh on each inside topic I want to read. If I don’t, very often the latest comments won’t show to me, regardless of whatever browser I’m using–Dee
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Ayesha B, thank you for the info on staging. Also, I called the utility companies today and the water and electricity will be on by Thursday with just a turn on fee and the gas is still on in the seller’s name and he said he will leave it on until the end of the month. It will be good to have running water and electricity on so I can truly clean this messy house!
Dee G, thank you for the additional info of auction houses, I will be sure and check them out too. I see now how it would be totally counterproductive to try and do an estate sale at the same time as a HBS.
And Mike G, I’ll be sure and put price tags on any furniture we put out curbside LOL!
Today we threw out 15 bags of trash with only about 25 more to go…any ideas on how to clean out a fridge and a freezer that had food left in them and no electricity?? Sunday is the inspection and I have a roofer coming over in the next day or 2 to do a free roof inspection. I also got quotes ready for my signs but I’m unclear if I should have a website printed on them like http://www.HighestBidderSale.com? (I dont have a website myself yet, just a business line and an email address).
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